Service sector slows, but business optimism high

The UK service sector continued to expand at the start of 2017, but the pace of growth in total business activity moderated for the first time in four months, according to the Markit/CIPS purchasing managers' index (PMI).

The index fell to 54.5 in January from the previous month's reading of 56.2. However, a reading above 50 still indicates the sector is expanding, and Markit said the economy was on track for a "buoyant" start to 2017.

Whilst inflation is putting "intense" pressure on the sector, with input price inflation reaching its highest level since March 2011, and charges rising at a rate unchanged from December’s 68-month high, business expectations improved to the strongest since May 2016.

Chris Williamson, Chief Business Economist at IHS Markit, says: "Encouragingly, optimism about the coming year has risen to its highest in one-and-a-half years, improving across the board in all sectors to suggest that January's slowdown may only be temporary. The main area of concern is the extent to which companies' costs are rising across the economy, with the rate of inflation accelerating to a pace not seen since before the global financial crisis.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply, adds: "With business optimism rising for the second month in a row, the sector has defied the Brexit doomsayers and is poised to maintain growth in 2017. With one eye firmly on the inflationary landscape, which is likely to become a permanent fixture in the coming months, the sector will be challenged to maintain its current trajectory.”

In this volatile economic landscape, it is essential that UK SME business owners maintain effective management of their company’s working capital and put processes in place to survive and thrive in challenging times.

Contact our specialist advisers at Beavis Morgan for guidance and strategic advice to help in formulating plans for your business in order to strengthen its prospects of success, achieve growth and maximise wealth. Our partner business, BM Structured Finance, is also available to help with sourcing and restructuring debt finance for SME businesses.

For further information, contact Steve Govey or your usual Beavis Morgan Partner.